Ascott Residence Trust - CIMB Research 2017-10-25: 3Q17 Lacks A Little Zing

Ascott Residence Trust - CIMB Research 2017-10-25: 3Q17: Lacks A Little Zing ASCOTT RESIDENCE TRUST A68U.SI

Ascott Residence Trust - 3Q17: Lacks A Little Zing

  • Ascott Residence Trust's 9M17 DPU of 5.04 Scts (-16.6% yoy) was broadly in line with our expectation at 71% of our full-year forecast.
  • We expect a stronger 4Q17, with contributions from Ascott Orchard Singapore (AOS), which was acquired on 10 Oct 2017.
  • 3Q17 lacks a little zing, with RevPAU (on a same-store basis) decreasing 1% yoy.
  • Revenue came only from acquisitions, while organic performance was a mixed bag.
  • Noticeably, weakness came from Japan, Singapore and the US.
  • Due to a lack of earnings catalysts, we maintain Hold on ART with a higher target price as we roll forward our DDM-based valuations.



3Q17: lacks a little zing 

  • Ascott Residence Trust's 3Q17 DPU of 1.69 Sts (-25.9% yoy) was at 24% of our FY17F. The headline -25.9% yoy drop was due to a one-off realised exchange gain in 3Q16 and rights issue completed in Apr 2017. Adjusting for this, 3Q17 DPU would have been 2.18 Scts (+1% yoy). 
  • 3Q17 RevPAU improved 1% yoy to S$146. 
  • On a same-store basis, RevPAU would have decreased 1% yoy. Hence, revenue growth came mainly from acquisitions, with organic performance a mixed bag and showing little momentum.


China boosted by AEI; US aided by acquisition 

  • As at 30 Sep 2017, Ascott Residence Trust (ART)’s four largest markets in terms of AUM are China (16.1% of AUM), Japan (13.5%), USA (12.5%) and Singapore (11.8%). 
  • In Sing dollars, 3Q17 gross profit from China improved 27% yoy. RevPAU (in RMB) climbed 4% yoy due to higher revenue from refurbished Somerset Xu Hui Shanghai. Meanwhile, gross profit from the US (in S$) improved 5% yoy due to DoubleTree by Hilton Hotel NY (acquired on 16 Aug 17). 
  • On a same-store basis, RevPAR (in US$) decreased by 8% yoy due to new supply.


Japan hurt from keen competition, Singapore still very slow 

  • In Sing dollars, 3Q17 gross profit from Japan fell 27% yoy due to depreciation of the JPY and competition from new supply (resulting in a lower ADR). 
  • On a same-store basis, RevPAU (in JPY) fell 7% yoy. Gross profit from Singapore fell 13% yoy. RevPAU fell 10% yoy due to subdued corporate demand and a long-stay project group which commanded lower average daily rates.


Gearing expected to increase to 36% 

  • As at end-3Q17, gearing stood at 31.9% (2Q17: 32.4%). 
  • Post the completion of Ascott Orchard Singapore and divestment of Citadines Biyun Shanghai and Citadines Gaoxin Xi'an, gearing is expected to increase to 36%. All-in interest costs were maintained qoq at 2.4% p.a.


Maintain Hold with a higher target price 

  • We increase our FY17F-19F DPU by 0.2% as we factor in higher contributions from China, partially offset by lower contributions from Singapore. 
  • Due to a lack of earnings catalysts, we maintain Hold on ART with a higher target price as we roll forward our DDM valuation. ART is trading at 6% FY18F yield and 0.98x current P/BV.
  • Upside/downside risks hinge on macro growth and acquisitions.




YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-10-25
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.160 Up 1.140



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